CPC - Caspian Policy Center


uzbekistan moves forward with russian gas deal

Uzbekistan Moves Forward with Russian Gas Deal

Author: Haley Nelson

Jun 22, 2023

Image source: Shutterstock

Russia’s state-owned Gazprom signed its first deal with Uzbekistan to supply Central Asia with 2.8 billion cubic meters of gas per year for the next two years. Although Gazprom has been seeking out alternative consumers since Europe began choking off Russian gas supply in 2022, Uzbekistan will unlikely serve as a profitable partner to Russia. 

After Russia’s retaliatory shutdowns of Kazakhstan’s Caspian Pipeline Consortium, and its use of energy warfare against Europe, Russia's international reputation has endured significant damage, rendering it an unreliable energy supplier in the eyes of many.  Coupled with the imposition of Western sanctions, Russia has encountered numerous challenges in finding customers willing to purchase its gas at global market prices, and this particular deal is no exception.

In 2022, Gazprom delivered 243 billion cubic meters (BCM) of Russian gas to its domestic customers, with revenues totaling 1.1 trillion rubles ($13.06 billion), about $60 per thousand cubic meters of gas. And to European markets, Gazprom delivered an estimated 101 BCM, with a revenue of 7.3 trillion rubles, or $970 per thousand cubic meters. However, as Europe persistently reduces its dependence on Russian energy imports, Russia urgently requires an alternative consumer market to compensate for its declining profits.  The agreement with Uzbekistan, anticipated to adhere to global market pricing, is incapable of replacing the substantial profits lost from European markets. Instead, it will further entrench Uzbekistan's reliance on Russian energy supplies, exacerbating the country's economic vulnerability.

Uzbekistan's Ministry of Energy has officially announced that starting from October 1 the country will commence receiving a daily supply of 9 million cubic meters of gas. The pricing of this gas will be determined based on market rates and prevailing conditions within Uzbekistan. The agreement, forged between Gazprom Export and Uzgastrade, is set for two years, resulting in an annual total of 2.8 billion cubic meters. To facilitate the increased gas supply, QazaqGaz, the state gas pipeline operator of Kazakhstan, has also entered into a partnership with Gazprom to operate the Central Asia-Center pipeline (CAC).

Prior to this agreement, the CAC pipeline had been utilized to export small quantities of gas from Turkmenistan to Russia. Furthermore, Uzbekistan predominantly relied on the Central Asia-China pipeline that transported gas from Turkmenistan to China, as well as on the Central Asia-Center pipeline, previously facilitating gas transportation from Turkmenistan to Russia. However, due to gas disruptions in Turkmenistan that resulted in power outages in Uzbekistan in January 2023, a revision of this system became imperative. In November 2022, Russian President Vladimir Putin proposed the formation of a trilateral union among Russia, Kazakhstan, and Uzbekistan. Eventually, Uzbekistan and Kazakhstan signed the agreement, which included discussions regarding the possibility of reversing the flows of the CAC pipeline. Given that the pipeline had never previously transported gas in a southward direction, necessary upgrades were required to facilitate this reversal.

In preparation for this new export deal, several infrastructure enhancements will take place. A new gas metering station will be constructed in September, three gas pumping stations will undergo upgrades, and approximately 22 kilometers (equivalent to 13.67 miles) of pipeline will be added to the existing system.

However, even with the modernization of the CAC pipeline, it is unlikely that this deal will generate substantial revenues for Russia. Because Uzbekistan's Ministry of Energy has declared that the tariff will be based on market rates and prices within the country, Russia will struggle to compensate for the lost profits from its large volumes of exports to Europe. 

In terms of potential political implications, the volume of 2.8 billion cubic meters per year is relatively insignificant and is unlikely to have a major impact on Uzbekistan's policy. While some analysts have suggested that this agreement could grant Russia political leverage over Uzbekistan, it is worth noting that Uzbekistan possesses an annual domestic gas output of 51.7 billion cubic meters as of 2022. Therefore, if necessary, Uzbekistan is more than capable of replacing Russian imports with its own domestic production. However, at present, most of Uzbekistan's energy resources flow eastward toward China, while the country's domestic market heavily relies on foreign imports. The decision to procure gas from Russia exposes vulnerabilities in Uzbekistan's energy infrastructure and domestic economy. Consequently, it would be a more pragmatic choice for Uzbekistan to prioritize the consumption of its own resources rather than relying on such an unreliable partner as Russia.

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